Tax Structure Alternatives Background Tax Packages Volatility Tax Options

1. Tax Structure Alternatives Background Tax Packages Volatility Tax Options

2. California State Revenues by Source($ Billions)

3. Revenue Neutrality Revenues over a business cycle 2012 through 2016 were estimated. Each Package was calculated to generate the same amount of revenues over the period. Distributional impacts by income class were estimated for the midpoint of the cycle 2014. Major state taxes were included in the distributional analysis of each tax package.

4. Business Cycle

5. Income Distribution 2003 and 2014

6. Trends of Tax Revenue 1963-2008

7. Tax Package RevenuesTrends over 2012-2016 Forecast Period

8. Adjusted Gross Income • Start with Gross Income • Income from all sources (unless exempt)—salaries, wages, commissions, tips, dividends, interest earnings, pensions, realized capital gains, partnerships and proprietorship income, etc. • Deduct from Gross Income • IRAs, Keogh Plans, 401Ks, Self Employed Health Insurance • Equals Adjusted Gross Income (AGI)

9. Tax Package 1 Version A Uniform Personal Income Tax rate of 6% with no deductions or credits Eliminate Corporation Tax Eliminate State General Fund Sales Tax Business Net Receipts Tax Version B Uniform Personal Income Tax rate of 6% with exemption amount, deductions for mortgage interest, charitable and property taxes Eliminate Corporation Tax Eliminate State General Fund Sales Tax Business Net Receipts Tax

10. Tax Package 1AEffective Tax Rate and Share of Total-Selected Taxes

11. Tax Package 1BEffective Tax Rate and Share of Total-Selected Taxes

12. Tax Package 2 Simplified Personal Income Tax Three brackets, rate of 0% for $0-$10,000, 4% to $50,000, 7% over $50,000) Current Deductions and Credits Investment Tax Credit Reduce Corporation Tax Rate to 7% Reduce Sales and Use tax by 1% Business Net Receipts Tax

13. Tax Package 2Effective Tax Rate and Share of Total-Selected Taxes

14. Tax Package 3 Simplified Personal Income Tax Three brackets, rate of 0% for $0-$20,000, 4% to $60,000, 7% over $60,000) Exemption amount, deductions for mortgage interest, charitable and property taxes Eliminate Sales Tax on Investment Purchases Reduce Corporation Tax Rate to 7% Reduce Sales and Use Tax by 1% Business Net Receipts Tax

15. Tax Package 3Effective Tax Rate and Share of Total-Selected Taxes

16. Volatility of Tax Packages

17. Option-Capital Gains Tax Reduction Capital Gains Income Varies Substantially Capital Gains Contribute Substantially to Volatility Capital Gains Have Become Increasingly Concentrated Tax Reduction Would Directly Benefit Higher Income Distribution of Benefits Would Vary By Year Reduction Would Reduce Volatility

18. Capital Gains Share of Income

19. Capital Gains Distribution

20. Change in Capital Gains Tax Liability

21. Option-Carbon Tax On Fuels Carbon Tax would be Regressive Based on Income and Similar to the Sales Tax Could Be Levied at the Point of First Distribution $20/ton would result in $0.18/gallon Tax on Gas, Diesel or Jet Fuel Would Raise About $3.16b-$3.28 Annually Over the Period Largest Business Impacts on Transportation (truck, air and rail), Business Services, Other Could reduce Top Rate for the PIT Under Any of the Considered Packages

22. Carbon Tax Distribution